If goods or services are paid for prior to 1st January 2010 this, “fixes” the VAT rate at 15%, even if goods or services sold are provided after 1st January 2010. Issuing a VAT invoice prior to 1st January 2010 does the same thing. These rules can be used to advantage by any business.
On sales, early payment might appeal to members of the public who are say, ordering a new kitchen, having building work done or even buying a new car, anything in fact where the 2.5% difference represents a real saving. The advantage of course, is that as a business your cash flow is considerably boosted.
Alternatively if increasing sales is the main priority, it is perfectly legitimate to issue a VAT invoice prior to 1st January 2010, to fix the VAT rate. Accordingly sales could be marketed at a fixed VAT rate of 15%. The down side is that if you raise a VAT invoice, VAT will have to be declared on the VAT return, probably in advance of payment.
Obviously this works for sales but equally it can be applied to your suppliers. A supplier can raise a VAT invoice in advance of making a supply and so fix the VAT rate at 15%. As a valued customer of your suppliers it may well be worth talking to them to see what can be arranged. Other areas to consider would be purchasing new assets on HP, VAT on property rental, etc
This could be of advantage to any business in terms of cash flow, but especially to non-registered or partially exempt business where the lower VAT rate represents a reduced cost, because these types of business cannot recover VAT charged.
The VAT man of course won’t allow businesses too much of a good thing. He says that where a supply is made after 1st January 2010 and the customer cannot reclaim the VAT charged, 17.5% must be declared if one of the following conditions is also met:
- you supply goods or services to a connected person (such as a business controlled by you);
- you provide or arrange funding of your customer’s payment;
- you issue a VAT invoice to a customer that does not have to be paid in full within 6 months;
- the payment or VAT invoice exceeds £100,000 and this is not normal commercial practise; or
- you supply rights or options to receive goods or services free of charge or at a discount.
This is a very involved area and we have only been able to comment on some basic issues. Obviously if you are unsure of anything give the TaxWise Advice Service a call on 01455 852555.
Let’s remember that this is not the only change taking place in VAT on 1st January 2010. Major changes are being introduced in the rules that apply to a business supplying services to EC business customers. A little further on, in April 2010, all new businesses registering for VAT and any existing VAT registered business with a turnover of £100,000 or more will have to submit and pay their VAT returns electronically – have a very happy new year!